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Increasing scale allows Unilever scheme to slash asset management costs

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Progress, the €5.7bn Dutch pension fund of food and cosmetics giant Unilever, has cut administration costs per participant by €23 to €128, according to its 2014 annual report.

Rob Kragten, the pension fund’s director, said the reduction had become possible after Progress created “approximately €500,000 in savings”.

The pension fund also managed to cut total asset-management costs, including transactions, by 11 basis points to 0.48% of assets under management.

Transaction costs fell by 50% to 0.06%.

The pension fund attributed the cuts chiefly to an increase in assets, which stood at €4.5bn at the start of 2014.

Progress’s board said the scheme’s increased scale had enabled it to invest more efficiently and negotiate better terms with asset managers.

The pension fund reported a return of almost 16% for 2014, outperforming its benchmark by 1.3 percentage points.

The scheme largely credited its 42% equity allocation – returning 15.4% and outperforming the standard portfolio by 0.8 percentage points – for the performance.

Fixed income investments and property returned 11.7% and 18.9%, respectively, while private equity returned 28.2%.

However, the pension fund lost 34.8% on its commodities portfolio, an underperformance of 0.7 percentage points.

According to its annual report, Progress applied a dynamic, anti-cyclical investment policy aiming to generate returns during times of low funding, and take profits and protect assets in times of high funding. 

It attributed 7.6% of its 2014 return to a combined interest/inflation hedge through swaps.

Kragten said the scheme’s dynamic hedge increased after real funding improved.

As of the end of 2014, Progress had covered 53% of its interest risk and 52% of its inflation risk.

Since last year, the scheme has applied an 80% hedge of the five main currencies, including the Australian dollar, and fully covered the currency risks on its holdings of commodities and government bonds.

However, following the appreciation of the US dollar and the Swiss franc relative to the euro, it failed to benefit fully from its currency hedge, the scheme said. 

The official ‘policy funding’ – the average coverage over the 12 months previous – stood at 139% as at the end of the first quarter, equating to a real funding of 103%.

In other news, the €5.3bn industry-wide scheme PNO Media reported a first-quarter return of 8.4% but warned that an increase in liabilities over the period, following the strong decline in interest rates, had offset the result.

As a consequence, the scheme’s actual funding fell to 94.2%, while its policy funding stood at 102.2% at March-end.

The media scheme reported quarterly returns on equity, property and private equity of 16%, 3.6% and 6.7%, respectively.

US dollar-denominated emerging market debt generated 14.5%, while government bonds and Dutch residential mortgages delivered 12.4% and 1.5%, respectively.

PNO Media lost 2.7% on its currency hedge.

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